The closure is a consequence of the Fukushima incident in Japan in March, which has closed down much of the nuclear industry there and led to a rethink of nuclear power around the world. But the government said the move had "no implications" for the UK's plans for new nuclear reactors.

Workers at the plant were told on Wednesday morning that there was "considerable scope" for them to be re-employed in other parts of the Sellafield complex.

It will take several months for the plant to close fully.

The west Cumbrian mixed-oxide fuel plant has cost the taxpayer £1.4bn since it was commissioned in the early 1990s.

The plant, operated by the government-owned Nuclear Decommissioning Authority (NDA), was set up to create mixed-oxide fuel for use in nuclear power plants, with its chief customers the Japanese nuclear industry, including the Fukushima complex.

The plant was built in 1996 and became operational in 2001.

The NDA denied there were any repercussions for the troubled Thorp reprocessing plant, although Thorp is also involved in generating Mox fuel, which is made from plutonium and uranium.

Tony Fountain, chief executive of the NDA, told workers on Wednesday morning: "The reason for this [closure] is directly related to the tragic events in Japan following the tsunami and its ongoing impact on the power markets. As a consequence we no longer have a customer for this facility, or funding."

He admitted that the plant had suffered "many years of disappointing performance" that has been funded by the taxpayer. He said the key to attempts to save the plant in recent years had been the commitment of Japanese utilities to reusing nuclear fuel, and their support for the UK as a "centre of excellence". But with the crisis in the Japanese nuclear industry, that route is no longer viable.

Fountain said: "The Hamaoka plant, owned by Chubu, the intended recipient of the first fuel, is currently closed awaiting extensive reinforcement work. Following Chubu, Tepco [Tokyo Electric Power Company] were destined to take 50% of the plant output and they as owner of the Fukushima plants are clearly facing the most extreme challenges."

Speculation about the future of the plant has been rife for months, as it became clear that the Japanese nuclear industry was unlikely to recover after Fukushima.

The NDA said: "[We have] concluded that in order to ensure that the UK taxpayer does not carry a future financial burden from [Sellafield Mox plant] that the only reasonable course of action is to close [the plant] at the earliest practical opportunity."

The NDA said it would continue to store Japanese plutonium safely, and "further develop discussions with the Japanese customers on a responsible approach to support the Japanese utilities' policy for the reuse of their material".

The government insisted that the closure of the Sellafield Mox plant had "no implications" for the proposed construction of several new nuclear power stations in the UK. Any such new nuclear power plants would be unlikely to be of the kind that could use Mox as a fuel, because the enormous costs involved in such reprocessing make it uneconomic to do so.

However, the government in a recent consultation held open the proposal that a new plant using Mox as fuel could be built, even though industry experts say the possibility of a company wishing to build such a plant are remote.

Another question is whether the closure will prompt NDA to close the troubled Thorp reprocessing plant as well. The NDA denied that it was considering closing Thorp, and said the two cases were "unrelated" and that the business case for Thorp, which produces plutonium from other nuclear waste, contined to be strong.

However, the Thorp plant was constructed on the same premise as the Sellafield Mox plant - that there would be a market for reprocessed fuels to be used in nuclear reactors. That market has proved extremely small - Japan has been the only customer - and the demise of the Japanese nuclear industry has closed down the market altogether.

New nuclear plants, such as the fleet of new reactors the government is hoping that European power utilities such as France's EDF and Germany's RWE will want to build in this country, will not use Mox or plutonium.

The government's suggestion that another reactor could be built in the UK that would use Mox as fuel was greeted with extreme scepticism by nuclear industry experts. They said any replacement Mox processing plant would be "another white elephant" that would cost the UK taxpayer billions but have little or no market for its products.

Industry experts noted, however, that the government has an interest in continuing to insist that Mox is still viable. If ministers admitted that Mox was not viable, the government would be forced to acknowledge that the hundreds of millions of pounds worth of plutonium that are stored here would have to be recognised as a liability on government balance sheets. However the pretence that another Mox plant may be built allows the plutonium to be reckoned a zero-value asset.

Labour MP Jamie Reed, whose Copeland constituency includes Sellafield, called on the government to lay out details of a potential plan to build a new Mox plant at the site.

He said: "It is now absolutely essential that the new Mox plant is brought forward as quickly as possible. The market for Mox fuel exists and is growing, our plutonium disposition strategy relies upon such a facility and the industry requires it."

He warned that "gleeful vultures" would seize upon the decision to close the plant and argue against the "critical national need for new Mox plant".

Green groups Greenpeace and Friends of the Earth said the move showed nuclear power did not make economic sense. Friends of the Earth's policy and campaigns director, Craig Bennett, said: "Yet again taxpayers are footing the bill for the Alice in Wonderland economics of the nuclear industry. This money could have been spent developing the UK's vast renewable energy potential, creating new green jobs and business opportunities. This announcement will be a tremendous blow to the hundreds of people that work at the plant - we hope their expertise can be redeployed to help safeguard us all from the nuclear industry's existing legacy of radioactive waste."